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AvalonBay (AVB) to Post Q1 Earnings: What's in the Cards?

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AvalonBay Communities, Inc. AVB is slated to report first-quarter 2018 results on Apr 25, after the market closes.

Last quarter, this residential REIT witnessed a positive surprise of 0.45% in terms of funds from operations (FFO) per share. Results highlighted growth in average rental rates. Additionally, economic occupancy increased slightly during the quarter.

In the trailing four quarters, the company surpassed estimates on one occasion and missed in the rest. This resulted in an average negative surprise of 1.49%. The graph below depicts the surprise history of the company:

AvalonBay Communities, Inc. Price and EPS Surprise

AvalonBay Communities, Inc. Price and EPS Surprise | AvalonBay Communities, Inc. Quote

Let’s see how things are shaping up for this announcement.

Factors to Consider

AvalonBay is well-poised to grow on the back of rising demand from household formation and favorable demographics. Also, increasing consumer confidence on the back of job growth, higher wages and a healthier balance sheet promises bright prospects for this Arlington, VA-based REIT.

Amid these, the company is likely to continue experiencing high occupancy.  Moreover, in a March-issued operating update for the first quarter, AvalonBay stated that it expects total rental revenues for established communities to be up 2.3-2.4% year over year.

Further, the Zacks Consensus Estimate of average rental rates at established communities is pegged at  $2,539, indicating a marginal rise sequentially. The Zacks Consensus Estimate for first-quarter revenues is $558.5 million, denoting an expected increase of 6.9% year over year.

However, per the latest report from the real estate technology and analytics firm — RealPage, Inc. — the national apartment market was moderated in first-quarter 2018, with occupancy shrinking slightly and rent growth slowing down. Nevertheless, the first quarter marks a slow leasing period, thanks to the cold weather that inhibits shift of households and limits growth in demand.

Going by statistics, the annual rent growth shrunk to 2.3% in Q1. This marked moderation from the 2.6-2.9% growth rate experienced throughout 2017. Occupancy level of 94.5% in March edged down from the prior-year tally of 95%, with metros having subdued construction activity faring well and recording the strongest occupancy. Nevertheless, the overall occupancy level is still healthy.

Moreover, there is an increasing apartment supply in a number of markets of the company. This high supply is likely to put pressure on rental rates in the to-be-reported quarter. In addition, there is high-concession activity amid elevated supply, which remains a concern.

Furthermore, the company’s activities during the quarter were inadequate to gain analysts’ confidence. Consequently, the Zacks Consensus Estimate witnessed a marginal decline over the last 30 days and is currently pegged at $2.19. Nevertheless, this indicates a 4.8% increase year over year.

Earnings Whispers

Our proven model does not conclusively show that AvalonBay is likely to beat estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a bullish Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. But that is not the case here, as you will see below.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks ESP: AvalonBay has an Earnings ESP of -1.06%, representing the percentage difference between the Most Accurate estimate and the Zacks Consensus Estimate.

Zacks Rank: AvalonBay’s Zacks Rank #3 increases the predictive power of ESP. However, we also need to have a positive ESP to be confident about a positive surprise.

Stocks That Warrant a Look

Here are a few stocks in the REIT sector that you may want to consider as our model shows that these have the right combination of elements to report a positive surprise this quarter:

PS Business Parks, Inc. PSB, scheduled to release first-quarter results on Apr 24, has an Earnings ESP of +0.67% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Taubman Centers, Inc. TCO, slated to release earnings on Apr 26, has an Earnings ESP of +0.47% and a Zacks Rank of 3.

Simon Property Group, Inc. SPG, slated to release quarterly numbers on Apr 27, has an Earnings ESP of +0.32% and a Zacks Rank #3.

Note: Anything related to earnings presented in this write-up represents funds from operations (FFO) — a widely used metric to gauge the performance of REITs.

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